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AssuranceAmerica’s
web-based automated system gives them an edge because agents can complete
and print policies, as well as policy holder wallet cards in their own offices, increasing
efficiency and service in the agencies’ offices, and lessening paper, postage and
time at headquarters
Financial
Property & Casualty Insurance
(ASAM-OTC: BB)
AssuranceAmerica Corp.
5500 Interstate North Parkway, Suite 600
Atlanta, GA 30328
Phone: 770-952-0200
Lawrence (Bud) Stumbaugh
President and CEO
Renée A. Pinczes, CPA
Senior Vice President & CFO
Interview conducted by:
Lynn Fosse, Senior Editor
CEOCFOinterviews.com
January 26, 2006
BIO:
Bud Stumbaugh, AssuranceAmerica’s CEO and President, built a company that became the
29th fastest growing privately held corporation in the U.S. in its sixth year when
compared to INC. Magazine’s list of 500 fastest growing companies in America. He
spent sixteen years in the Georgia State Senate, was Chairman of the Insurance Committee
and a candidate in his party’s Lieutenant Governor’s race. He now serves on the
board of the Epilepsy Foundation and recently completed a five-year term as Faulkner University’s
Chairman of the Board where he still serves as an active board member.
Company Profile:
AssuranceAmerica Corporation is a property and casualty insurance organization focusing on
the specialty (non-standard) private passenger automobile segment of the industry.
It presently has three revenue-producing operating
subsidiaries. Trustway Insurance (1999) is a chain of 32 specialty automobile insurance
independent agencies located in Georgia and Florida. AssuranceAmerica Managing General
Agency began business in 2000, and conducts business in Georgia, South Carolina, Florida
and Alabama. AssuranceAmerica Insurance Company became a carrier in April 2003, and
conducts business in Georgia, South Carolina and Alabama, and has been approved to write
in the additional states of Arkansas, Florida, Mississippi, and Texas.
CEOCFO: Mr. Stumbaugh,
what was your vision when you started the company and where are you today?
Mr. Stumbaugh: “We felt there was a lack of balance in the specialty
automobile insurance industry. There were retail agencies or risk baring insurance
carriers standing alone. We felt there was more strength when there is a balance of both
together. As a result of our balance, when competitor carriers attempt to buy a market by
reducing prices and losing money, we are not tempted to do the same thing. This is because
we will have a retail agency side whose top line can continue to grow and build our
corporation’s overall revenue even if our carrier’s growth slows. At least we
can maintain the profit of the carrier, and still have overall corporate growth, without
having to chase the low prices of our competitors. We saw both profit and fast growth as a
result of balancing retail agency sales with our carrier. So far it has come true with
about 30% annual growth thus far. Plus, even better increases in our pre-tax profits.”
CEOCFO: Is it unusual to
have that in one company?
Mr. Stumbaugh: “It is very unusual in the non-standard
insurance industry, not so unusual in the standard or preferred. We have all heard of
Allstate Insurance Company (NYSE: ALL) and State Farm®, which have both the carrier and
also the retail arm. But in the non-standard arena, hardly anyone can name a single
company that has a nationwide brand name. We think it is a mistake in the non-standard
area to be strictly a captive agency selling our own products. So, we not only sell our
carrier‘s products in our retail locations, but we sell the products of our
competitors. By not being captive, but instead, being independent, even though we own the
agencies, we are able to grow no matter what our competitors’ pricing is. We sell our
competitors’ products if they want to be irresponsible and cut their prices. Our
overall corporate growth continues even when we slow our own carrier’s growth as a
result of our refusal to join those that price policies irresponsibly. We do not have to
sell our own carrier’s policies at an irresponsible pricing level. We grow
through selling policies of other carriers who may not have the same orientation to
underwriting profits, which we have. That is very unique in the non-standard auto
industry.”
CEOCFO: How do you
accomplish that without wanting to lean toward your own products?
Mr. Stumbaugh: “We try to have niches for each carrier
for whom we write. We may write for a carrier that primarily wants liability only
coverage. We may have a carrier that is primarily priced to attract those with previous
insurance. We may have one that is primarily priced to attract new customers. We may have
another niche that is comprehensive coverage rather than liability only. In Florida, we
may have a company that specializes in PIP/PD. If we have a niche for six or seven
companies, then we do not have them directly competing one against the other. We are able
to give the vast majority of carriers close to 100% of the agency’s business in the
niche they are trying to cover”
CEOCFO: Will you tell us
more about the non-standard insurance market and what is being covered?
Mr. Stumbaugh: “Non-standard must have 100
characteristics, but there are generally two that dominate. One, we serve customers that
may be from a lower socio-economic level. Your preferred/standard companies are not going
to chase customers each month to pay their monthly bills. Second, the non-standard
customer may have a driving record that is flawed with some tickets or accidents and your
standard or preferred carriers do not want that higher risk driver. The non-standard
industry prices include fees for installment payments. Non-Standard prices also include
enough funds to pay claims from the driver who perhaps is going to have more accidents
than others. Reaching out to this segment of the population has made non-standard
the fastest growing part of the industry, growing at about 12% over the last ten years as
opposed to 3% on the standard or preferred side.”
CEOCFO: What states are
you in now and are you working on expanding your reach?
Mr. Stumbaugh: “We are in Georgia, which is or corporate
headquarters, South Carolina, Florida and Alabama. We have also been approved in Arkansas
and Texas, and we will be in one or both of those states by January 2006. We are within
thirty to sixty days of approval in about four other states. Our goal is to enter four new
states per year for the foreseeable future.”
CEOCFO: How do you
decide which states you are going into?
Mr. Stumbaugh: “Several factors help us choose the
states. One, we study what our competitors are doing. If, overall, the competitors are
making money, then we think we are as good or better than most of them, so we will go to
that state because we know it is a profitable state. If nobody is making money in a state,
then we tend to stay away from it because we make the assumptions that there is something
inherently wrong with that state’s business culture, or in their legal system or in
their pricing structure. Second, we look at states that have mandatory insurance laws,
which help with marketing. If people have to have insurance then you do not have to
convince them, you just have to make it available at attractive levels of service. Third,
we look at the regulatory atmosphere; can we make rate adjustments frequently or only once
every year or two, and are we given the right to make a fair return on our investment. We
are very interested in what the regulatory atmosphere allows us to do.”
CEOCFO: You are having a
good year this year; will you tell us about the financial picture at Assurance?
Mr. Stumbaugh: “When we started this company, my partner
and I totally financed it. We put about $13 million of our own (mostly his) capital into
it. We did it as debt, later forgave half of that debt, turned it into equity, and got it
down to about six-and-a-half million in debt. In the early stages, we were not concerned
with making money right then. We wanted to build a firm foundation that would allow
us to make money in the future. Thus, we invested over $3 million in a web-based automated
system. We do not even need to install software in the agent’s office; we just give
agents a code and they can begin to write our policies. As a result of investments in our
foundation -- we lost a lot of money -- always less than we budgeted to lose, but we still
lost money (purposefully) building that foundation.
We have gotten to the point now where we are able to
make a profit because of our growth. The top line and the resulting economies of scale
have given us a decent bottom line. For example, in 2003, we budgeted a $1.4 million loss,
but we lost $1.2 million. In 2004, we budgeted a $400 thousand loss and we lost $48
thousand dollars. This year, we budgeted $1.1 million pre-tax profit and through ten
months we have already made $2.1 million pre-tax profit.”
CEOCFO: It sounds like
you are doing something right!
Mr. Stumbaugh: “Well we have the right people, the right
product, the right service, and the right efficiencies because of automation, so we see a
bright future as a result.”
CEOCFO: Will you touch
on the importance and quality of your people?
Mr. Stumbaugh: “In the typical company, you have an A or
B manager, and the A manager tends to hire B managers and the B managers tend to hire C
managers and before you know it you have a company full of average or below average
people. What we have tried to do is unique; we have encouraged all of our managers, to
hire managers that are stronger and better than themselves. If you have to pay $5 thousand
more than you pay yourself, do not let your ego stand in the way because if you will hire
strong people, they will never kick you out. You are always getting kicked up. To the B
players we say hire A players. Always hire somebody stronger and smarter than you, and
because of that, we do not end up with as many average players. Our players are far above
average. We think they are smarter, work harder, and are more productive. Therefore, we
are going to have a much stronger company as a result.”
CEOCFO: Do you do much
advertising and is name recognition important in the area that you serve?
Mr. Stumbaugh: “We do not sell directly to the consuming
public. We sell our product only through independent agents in large and small towns and
cities. The independent agent covers the personnel cost we would have if we were trying to
sell our own policies because they pay themselves and others they hire to sell our
policies. They also pay for rent, phones and other expenses. That includes advertising
expenses. They are trying to get folks in their hometown to come in and buy from them.”
CEOCFO: Do most people
care who the policy is from if it does what they want?
Mr. Stumbaugh: “I don’t think they care a whole lot
on the front end – when they are buying. After the sale, if they have had a pleasant
experience with our company, if we treated them like kings and queens, then they care. If
they ever have a claim, and we handle it fairly and quickly, then they care and are very
interested in renewing with us. If we did not do well after the sale, they do not want to
renew with us. In that sense, your name recognition is important. But, more than name, our
reputation for how we treat the policyholder is extremely important.”
CEOCFO: Why should
potential investors be interested in the company now?
Mr. Stumbaugh: “I think there are three main reasons
that the investment community should be interested. First, you always want to invest with
people who have done it before. Otherwise, management might just be chasing a wild and
hopeful experiment. Our chairman built a company in the contract staffing and temporary
help arena from ground zero to a $1.4 billion NYSE company. I was fortunate enough to
build a company that in its sixth year became the twenty-ninth fastest growing privately
held corporation in America based on Inc. Magazine’s list. We have built large and
profitable companies before, and while there are never any guarantees, there is a better
chance of someone doing it again if they have done it once before. We have turned acorns
into oak trees! That would be one reason to invest with us.
The second reason investors should consider us is our web-based automated system. Large
companies in the automobile insurance industry are fighting their history. They have
legacy systems that require printing of policies at headquarters and then mailing them out
to their policyholders. We do not have to do any of that because we have a web-based
system that doesn’t even require installation of software in the agent’s office.
The agent gets on the web, writes the policy, prints it off right in his or her office,
and hands that policy, along with the wallet card and the glove compartment card, to the
policyholder. We have less paper and postage at our headquarters. We do not have an old
slow legacy system, with its attendant high costs, that we have to overcome.
The third reason investors should consider ASAM is we
have the fastest growing top-line and bottom-line percentage wise of almost any company in
the non-standard automobile insurance business. When you can hitch your star to somebody
that has grown at 25% to 35% a year on the top-line and even better, on the bottom-line;
that is a ride worth taking.”
CEOCFO: Are there any
final thoughts for our readers?
Mr. Stumbaugh: “I have two philosophies about promises.
One, do not make many. And two, keep the ones you make. If anybody is interested in our
company, know that we are not going to engage in wild promising, and we will do our very
best to live up to the few promises we do make.”
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